FCC Net Neutrality Ideology Out of Step with Internet Reality

“Today, we celebrate the first glorious anniversary of the Information Purification Directives. We have created, for the first time in all history, a garden of pure ideology—where each worker may bloom, secure from the pests purveying contradictory truths. Our Unification of Thoughts is more powerful a weapon than any fleet or army on earth. We are one people, with one will, one resolve, one cause. Our enemies shall talk themselves to death, and we will bury them with their own confusion. We shall prevail!” Apple advertisement, 1984.

There are now two Internets. The Internet envisioned by the ideology embodied in the FCC’s new net neutrality rules, and the Internet as it exists in reality. The “net neutral” Internet is “a garden of pure ideology” where content companies “are one people … with one cause” and network congestion is merely a figment of the imagination. The real Internet is different — congestion is commonplace and the interests of content owners are divergent.

The pests of reality’s contradictory truths threw the first hammer at the ideological Internet on Monday, when the Wall Street Journal reported that HBO, Showtime, and Sony Corp. want to stream their Web-TV content separately from the “public Internet.” They fear Internet congestion will only get worse as viewers stream more video content and they don’t want to offer consumers a frustrating experience. So they are talking with major broadband providers about having their streaming services treated as managed services that would give consumers the best experience possible.

That makes a lot of sense for video companies like HBO, Showtime, and Sony Corp., because the content they want to stream doesn’t need the open Internet. Movies and TV shows are typically consumed as passive entertainment, not interactive data services. Consumers watching Game of Thrones don’t need “access to all destinations on the Internet” to enjoy the show. What they do need is for the show to stream reliably.

As a consumer, I think a reliable, on-demand stream of Game of Thrones is a good idea, and I expect many consumers agree with me. Guess who doesn’t? The Internet middlemen, like Sling TV, who make their money by repackaging and reselling other companies’ content. Sling thinks it’s a bad idea, because consumers wouldn’t need Sling if content companies offered reliable video streams to consumers directly.

Sling’s complaints about managed services in the Wall Street Journal rely on the usual net neutrality tropes — that it promotes innovation and protects small companies. But there is nothing innovative about adding a middleman to the video value chain or forcing small companies to deal only with such middlemen. Over the top video streaming services that aggregate other people’s content are functionally similar to web portals (web pages that act as a uniform interface for other people’s Internet content) that failed during the dot-com bust. Web portals were big buzz in the late 1990s, when many believed they would be central to the future web experience. As the web advanced, however, Internet companies realized that consumers didn’t need web portals to access quality content or to use search engines, which left web portals with nothing to sell.

Managed services are a threat to third-party OTT video providers in the same way that search engines and well-designed web pages were a threat to web portals. If popular video content could be reliably streamed from content owners to consumers directly, OTT providers would have nothing to sell. That’s one reason that OTT companies like Netflix have an incentive to undermine the development of open standards for streaming video by targeting ISPs that install open caching appliances (an issue that has been investigated by FCC Commissioner Ajit Pai). Proprietary standards are a textbook method of establishing vendor lock-in — i.e., making small content providers dependent on Netflix for online video distribution.

It’s also a reason why the FCC’s net neutrality rules are more likely to create monopolies in the middle than to help consumers. Though HBO, Showtime, and Sony Corp. — none of whom are affiliated with ISPs — believe consumers want managed video services, regulatory concerns could be a deal-breaker. No deal has even been announced, yet Sling TV is already alleging that the proposed services are inconsistent with net neutrality, and the Wall Street Journal reports that regulatory risk has been a factor in the negotiations. That might be sweet music to OTT middlemen’s ears, but it’s discordant with the “public interest.”

It’s been fewer than two weeks since the FCC released its new net neutrality rules, and the new ideology is already out of step with the reality of consumer demand in the emerging market for streaming video services — an unfortunate consequence of all such attempts at government enforced conformity. But, like the fictional “Information Purification Directives” in Apple’s famous 1984 ad, I don’t expect the American people will allow the FCC’s new ideology to prevail. Americans are not soulless drones. Whether it is Congress or the courts, someone will swing the hammer that brings Big Brother down.